HAVANA (AP) – Starting this week, the Cuban government will begin buying dollars at five times the official rate in an attempt to capture more foreign currency and fight the informal market. The measure also affects other currencies such as the euro.
Individuals and small businesses can exchange their dollars at bureaux de change and banks – all state-owned – for 120 Cuban pesos per dollar, although in practice they get 110 pesos once the commission charged for the exchange is subtracted.
This exchange rate is higher than the official rate of 24 Cuban pesos to the dollar, which is maintained for the accounting purposes of government agencies or companies that hold dollars and are the country’s productive base.
The euro will go from 24.40 to 122 pesos, which minus the commission will be 119 island coupons for each community unit.
Here’s a look at what the Cuban authorities’ decision implies:
why was this decision made?
Although a closure of the foreign exchange market in Cuba was never announced, as of January 2021, due to a financial reform that abolished dual currency, dollars were no longer bought and sold on the island – until then, the equivalent convertible peso circulated alongside the Cuban peso. to the dollar – and the paralysis of tourism due to the COVID-19 pandemic and fewer remittances arriving as a result of United States sanctions.
Although the state did not sell dollars or other foreign currency to the population, people went to the informal market to buy foreign currency, to load debit cards, which they used to buy groceries in special shops on the island, to emigrate or travel abroad to make purchases for to resell -particularly Mexico and Panama-, among others.
Until last week, the rate on this parallel market was between 110 and 120 pesos per dollar.
The government also imports food, medicine and relief supplies, which must be paid for in dollars.
For example, the government buys food abroad for about $2,000 million a year, which the state then sells to the people in pesos and at a subsidized price.
With a course similar to that of the informal market, the government hopes that Cubans will walk away and the state will increase its dollar reserves. However, some experts warn that this could have the opposite effect.
Free buying and selling dollars in Cuba?
No, the announcement does not mean that a free exchange system will be introduced, as for the time being only dollars can be sold at exchange offices and banks.
According to the measure, the official exchange rate of 24 pesos per dollar for the operation of state-owned enterprises, their imports and exports will be maintained.
The figure of 120 Cuban pesos – 110 after deducting the commission – will fluctuate depending on the international market, according to the Cuban authorities.
Cubans or foreigners, non-agricultural cooperatives and small and medium-sized businesses can participate in the windows and receive an 8% commission if the money is in cash. If the exchange is made by bank transfer, they receive 120 pesos. However, some experts warn of negative effects.
What risks are they exposed to?
“It is a recognition of the devaluation of the Cuban peso that has taken place in the informal market,” said economist Pavel Vidal, a professor and researcher at the Pontificia Universidad Javeriana Cali in Colombia, in an interview with The Associated Press.
On a positive note, Vidal said remittances could now be sent through formal channels — no one wants to sell remittances for 24 pesos per dollar when they can get 120 on the informal market — which could trigger a negotiation with the United States, which had done so banned such deliveries during Donald Trump’s administration and was recently addressed by Joe Biden.
For decades, Cubans got their remittances through Western Union, but Trump banned their operations, so people sending money to their families on the island did so by mule or informally, feeding the parallel market.
However, Vidal emphasized that it was “a huge mistake” to turn the foreign exchange market into just a mechanism for collecting foreign exchange, as it would introduce too many pesos into the financial circuit and people would suffer the consequences if inflation were unleashed, fueled by it amount of money.
For his part, Cuban economist and professor Omar Everleny Pérez added to the AP that with the measure the government will suppress the dollar to 120 pesos, but will not be able to make the informal market disappear as the huge demand for dollars continues will emigrate and to stock up on goods that are not produced on the island, for which the parallel rate could rise even further.
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Andrea Rodríguez is on Twitter: www.twitter.com/ARodriguezAP